Oman Daily Observer

Germany wants a merger to underpin Deutsche Bank

- TOM SIMS, JOHN O’DONNELL

Deutsche Bank and Commerzban­k confirmed they were in talks about a merger, prompting labour union concerns about possible job losses and questions from analysts about the merits of a combinatio­n. Germany’s two largest banks issued short statements after separate meetings of their management boards, a person with knowledge of the matter said, indicating a quickening of pace in the merger process, although both also warned that a deal was far from certain.

Deutsche, the largest bank in Germany, Europe’s biggest economy, emerged unscathed from the financial crash but later lost its footing.

In 2016, the Internatio­nal Monetary Fund called the bank the world’s biggest potential risk among peers to the financial system because of its links to other banks.

German officials fear that a recession or big fine, for example, could derail the bank’s fragile recovery. Berlin wants a reliable national banking champion to support its export-led economy, known for cars and machine tools.

Deutsche and other European banks have taken longer to recover from the financial crisis, losing ground to stronger rivals from the United States.

Other than Deutsche, Commerzban­k is Germany’s only remaining big bank, after a series of mergers. The government holds a 15 per cent stake after bailing it out during the crisis, giving it an important voice.

Commerzban­k, like Deutsche, has struggled to rebound, and German officials say it is vulnerable to a foreign takeover. If an internatio­nal rival snapped it up, that would increase competitio­n for Deutsche on its home turf.

Berlin also wants to keep Commerzban­k’s speciality — the funding of medium-sized companies, the backbone of the economy — in German hands.

The merged bank would have roughly 1.8 trillion euros in assets, such as loans and investment­s, and a market value of about 25 billion euros ($28 billion). It would have one fifth of the German retail banking market.

Together, Deutsche and Commerzban­k employ 140,000 people worldwide. A merger would put tens of thousands of jobs at risk, according to unions.

Proponents of a merger include the German government and US investor Cerberus, which is a shareholde­r in both banks. Opponents include some other shareholde­rs in Deutsche Bank and labour unions.

Deutsche’s CEO Christian Sewing would prefer to have more time to stabilise the bank before taking on a merger, people familiar with the matter have said.

On March 17, both banks held management board meetings and confirmed they were in talks about a merger, though both warned that a deal was far from certain.

In February, Deutsche’s management board gave Sewing the go-ahead for explorator­y talks with Commerzban­k, a person with knowledge of the matter said. There had been contacts among a small circle of executives.

With the talks now out in the open, and Berlin still pushing for a deal, the companies are under pressure to figure out the mechanics of a fusion and decide whether or not it is workable. That decision is seen within weeks.

One of the biggest risks is how to fill what one German official has said will be a multi-billion-euro financial hole because a merger could trigger an adjustment to the valuation of some bank investment­s.

Commerzban­k, for example, has about 30.8 billion euros of debt securities such as Italian bonds that now have a value of 27.7 billion euros — a drop of 3.1 billion euros. A tie-up could crystallis­e this loss. Deutsche has such securities at market value in its accounts.

The deal would make the German government a shareholde­r in the country’s largest bank and executives would want to curb its influence.

The two banks could also get bogged down with restructur­ing, such as integratin­g different technology systems, losing ground to rivals.

German officials have held explorator­y talks about merging Deutsche Bank and UBS but there was little interest in Switzerlan­d, people familiar with the matter have said.

OTHER THAN DEUTSCHE, COMMERZBAN­K IS GERMANY’S ONLY REMAINING BIG BANK, AFTER A SERIES OF MERGERS. THE GOVERNMENT HOLDS A 15 PER CENT STAKE AFTER BAILING IT OUT DURING THE CRISIS, GIVING IT AN IMPORTANT VOICE.

 ?? — Reuters ?? A statue stands in front of the logo of Germany’s Deutsche Bank AG in Frankfurt.
— Reuters A statue stands in front of the logo of Germany’s Deutsche Bank AG in Frankfurt.

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